Moody’s Investors Service Tuesday flagged worries over China’s burgeoning debt load a day after a party newspaper branded high leverage in the economy as the “original sin”.
Total debt in the world’s second-largest economy stands at 280 percent of gross domestic product (GDP), much of it owed by entities owned by or related to the government, potentially leaving Beijing on the hook for a portion of these loans, Moody’s said in a report.
China’s actual government debt is more modest at around 40 percent of GDP with state-owned entities (SOEs) owing 115 percent of GDP, higher than any other rated sovereign, Moody’s said.
Moody’s estimated that that liabilities worth 20 percent to 25 percent of GDP could potentially require restructuring. Not all of this restructuring will strain the government’s balance sheet though. The government would potentially support some SOEs though engineering mergers, injecting equity or reducing their size, the ratings agency said.